A gift of land, while reserving the right to use the property for life, is another way a donor can contribute to the Frederik Meijer Gardens & Sculpture Foundation. The property would eventually be sold. The donor may deduct the value of the remainder interest as an immediate charitable contribution if the property is a personal residence. The value of the property would be removed from the donor’s estate and, in addition, capital gains taxes would be avoided.
A couple donates the remainder interest of their farm to the Foundation, reserving the right to operate the farm during their lifetime. The property is valued at $350,000 and has a basis of $45,000. Using IRS actuarial tables, the remainder interest has a value of $167,300 (47.8%), which results in a federal income tax deduction. The value of the farm will also be excluded from their estate.
|Charitable gift value||$167,300|
|Federal income tax savings ($167,300 x 25%*)||- $41,825|
|Federal capital gains tax avoidance (($350,000 - 45,000) x 47.8%) x 20%||- $29,158|
|MI income tax avoidance (($350,000 - 45,000) x 47.8%) x 4.35%||- $6,342|
|Estimated net cost to the donor, excluding retained interest||$89,975|
|Possible estate tax savings ($350,000 x 40%)||$140,000|
Benefit to the Foundation
Upon the death of the donor, the Foundation would own the property. The $350,000 proceeds from the sale of the property would be used to set up an endowment fund in the donor's name. The Foundation adds the gift to it's unrestricted endowment fund, which provides support for the Frederik Meijer Gardens & Sculpture Park.
* Individual federal income tax rates vary.
Note: Any estate tax savings will depend on the Estate tax rules in effect on the date of death.
Note: The capital gains tax and Michigan income tax avoidance assumes the donors would otherwise sell their home during their lifetime. If they own it at the survivor's death, it would receive a step up in basis to its fair market value so there would be no capital gain tax or Michigan income tax.